annual report 2019 · 2020-01-29 · go-to market strategy in high growth areas leveraging our...

Annual report2019NNIT A/S, Oestmarken 3A, DK-2860 Soeborg • CVR no. 21 09 31 06

ContentsNNIT in brief

At a glance 3Equity story 4Letter from Management 5Main highlights 2019 7Performance highlights 92019 financial performance 10Outlook 13

Our business

Market trends 14NNIT Strategy 15Our business model 19The clients we serve 20Customer experience and satisfaction 22New partnerships 24Business and company overview 26Risk management 29Great people make the difference 32

Governance

Corporate governance 35Remuneration 38Shareholder information 39Board of Directors 41Group Management 44

Statements

Management's statement 46Independent auditor's report 47

Consolidated financial statements

Income statement and statement of comprehensive income 51Balance sheet 52Statement of cash flows 53Statement of changes in equity 54Notes 56

Parent company financial statements

Income statement 93Balance sheet 94Statement of changes in equity 95Notes 97

Management’s review Financial statements 2019

Annual report 2019 Management Review2

M Contents

At a glance Revenue, DKK million

NNIT revenue in 2019. A growth of 1.7%

3,058

Operating profit margin before special items

Operating profit margin before special items in 2019 compared to 10.2% in 2018

7.8%

NNIT is a leading provider of IT transformation services and solutions to international life sciences companies and for the Danish private and public sector.

At NNIT, we stand firmly on our three core values and we strongly believe that we can make a mark on business and society together with our clients and partners.

Headquartered in Denmark, NNIT has subsidiaries throughout Europe, North America and Asia.

Employees at year-end

Average number of full-time employees in 2019 was 3,237

3,207

Life sciences international revenue growth

Life sciences international revenue growth in 2019. Organic revenue growth was 17% in 2019

70%

Backlog visibility

of revenue contracted at beginning of 2019

71%

Payout ratio

Dividends proposed on net profit in 2019 compared to 48% in 2018

54%


M At a glance

Equity storyLeading Danish IT services company with potential to further utilize life sciences DNA internationally.

1 Leading market share in IT services market in Denmark. Based on Gartner ”IT services market share 2018”2 Last 3 years performance in International Life Sciences. Based on average yearly growth from 2016-2019 in International Life Sciences3 Especially within the following areas: Regulatory Affairs, Quality Management, Pharma Production IT and Veeva solutions 4 The market share in Denmark is below 7% and internationally below 1%. Based on Gartner Q3 2018 and NNIT data, International is International Life Sciences in North America, Western Europe and Greater China5 Rated as one of the most attractive IT workplaces in Denmark. Ranked number one in category consultant and four in total in IT company Rank 2019 from Version2. Ranked the seventh most attractive IT employer from Universum 20196 Three acquisitions performed in the past three years. SCALES in 2017, Valiance Partners in 2018 and Halfmann Goetsch Partner in 20197 Defined as dividends paid on net profit for the previous fiscal year

Top two Danish IT market leader(1)

>20% historical organic revenue growth outside

Denmark(2)

Strong domain knowledge within life sciences(3)

Large potential in Denmark and international

life sciences markets(4)

High dividend pay-out ratio >45%(7)

Successful acquisition track record(6)

Strong employer brand(5)

Strongholds:

Regulated IT

Hybrid cloud Cybersecurity


M Equity story

2019 leaves a mixed picture 2019 was a year that represented a very mixed picture for NNIT. Growth in international life sciences continued to be very strong, while changes in buying patterns from some of NNIT’s largest clients and a decrease in project revenue from the Novo Nordisk Group resulted in significant pressure on the NNIT business. Reported revenue growth of 1.7% and an operating profit margin before special items of 7.8% was disappointing.

In the annual report for 2018 we introduced an updated business focus alongside a considerable organizational change. Both moves were preparation for anticipated new business behavior from both existing and future clients. While we were expecting new business opportunities as a result, we were also anticipating a change in clients’ purchas-ing behavior – among other things, from single-vendor to multi-vendor perspective, resulting in fewer large agreements than seen previously.

This did help us enable growth. The inter-national life sciences area has consistently demonstrated growth of more than 20% over the last three years, 2019 included. International life sciences remain a strategic focus area for NNIT, and we are encour-aged by its prospects. To further advance this growth, we continue to invest in the area, not least through acquisitions that have proven highly valuable, such as the

acquisition of US-based Valiance Partners in October 2018.

In April 2019, we acquired Swiss-based Halfmann Goetsch Partner (HGP) that is recognized as one of the strongest providers of IT compliance and quality management services to pharmaceutical companies. With the addition of HGP’s excellence, reputation and network within IT compliance, we expect to generate cross-sales synergies. Among others within pharmaceutical production, where HGP’s thought leadership fits well with NNIT’s existing portfolio of IT-services.

In other segments we unfortunately saw another picture. We adjusted our financial expectations for the year due to a low oper-ating profit margin in Q1 2019 as well as a large decline in the order entry backlog and operating profit margin from the Novo Nor-disk Group. As we published our half-year results, the situation had not improved and Carsten Dilling, Chairman Per Kogut, CEO


M Letter from management

to mitigate this we announced a business and cost reduction plan including reduction of 250 positions.

We also experienced an unexpected termi-nation of the application maintenance agree-ment with the Novo Nordisk Group while PANDORA chose to terminate their business with NNIT, both with effect from 2020.

The decline in revenue from the Novo Nor-disk Group of 15.1% and growth from other clients of 11.7% leaves NNIT with a more diversified client composition. Thus, the share of NNIT’s revenue from clients outside the Novo Nordisk Group increased to 69% in 2019 from 63% in 2018 and less than 50% at the time of the IPO in 2015.

The updated business focus presented in January 2019 was based on a thorough review of the direction set at our IPO. Many of the elements in the strategy worked well in 2019, including the growth of our business within international life sciences. However, with the unexpected sharp decline in business, increasing competition from

new entrants as well as disappointing results with the infrastructure outsourcing area, the board has over the last six months reas-sessed the strategy through a comprehen-sive strategy review.

It is clear that in order to improve profit-ability NNIT needs to have a more focused go-to market strategy in high growth areas leveraging our existing strong capabilities or areas where we have the potential to build strong capabilities - our "winning solutions".

These winning solutions will be based on proven standardized concepts which are delivered fit for purpose and first time right. This will underpin our customer centric-ity while at the same time ensuring higher margins. A selection of winning solutions can also act as the door opener to infrastructure outsourcing contracts.

Along with implementing this focused go-to market strategy, we will carry through with the earlier announced business and cost restructuring plan reducing costs by DKK 150 million in 2020; targeting a full-year run rate impact of minimum DKK 200 million in 2021.

Key elements in this plan are standardiza-tion, continuous automation, higher billable utilization of project staff, and better project execution, as well as reduction in staff func-tions. All these initiatives will be supported by the standardizations made possible through a focus on winning solutions.

Looking ahead, we anticipate 2020 to be a year of change and transition. While our new strategy formulates our direction and our ambition, it also requires investments and organizational changes as well as cultural changes. We believe we stand well pre-pared as one of the strongest IT brands in Denmark and we can gain further ground internationally just like we proved in 2019. Not least due to our highly skilled employees who continue to demonstrate their dedica-tion and passion.

On behalf of NNIT’s Management and its Board of Directors, we would like to extend our sincere gratitude to all our clients and our dedicated employees. Our employees remain the foundation of the company. Also special thanks to shareholders and partners for your continued support.

Carsten Dilling, ChairmanPer Kogut, CEO


Main highlights 2019

• Revenue grew by 1.7% driven by international life sciences and finance clients

• 11.7% growth in revenue from clients outside the Novo Nordisk Group, while revenue to the Novo Nordisk Group declined by 15.1%

• Organic revenue growth was negative 1.5% and positive 6.2% when excluding the Novo Nordisk Group

RevenueDKK million

3,058• Operating profit margin before special items of 7.8% (10.2% in

2018). The operating profit was impacted by declining revenue and prices from the business with the Novo Nordisk Group

• Operating profit margin after special items of 7.0% (10.2% in 2018)

Operating profit margin%

• NNIT generated a free cash flow of DKK 242 million in 2019 compared to DKK 116 million in 2018. 2018 was impacted by the up-front payment for the acquisition of Valiance (DKK 162 million), whereas 2019 was impacted by the up-front payment for the acquisition of HGP (DKK 58 million) and from com-mercial factoring (DKK 149 million), see note 3.6 for further information

Free cash flowDKK million

• Proposed dividend for 2019 of DKK 98 million (2018: DKK 113 million) corresponds to a payout ratio of 54% and a dividend yield of 3.6%

• Dividends are normally paid out twice a year, an interim divi-dend after Q2 and an ordinary dividend after Q4

• Earnings per share of DKK 7.43

Payout to shareholders%

4.0• NNIT’s order backlog of signed contracts for delivery in 2020

at December 31, 2019

• Year on year decline in backlog for 2020 of 6.1% compared to the backlog for 2019 impacted by expiry of the large applica-tion maintenance agreement with the Novo Nordisk Group and loss of PANDORA agreement

Order backlogDKK million

2,039• Average number of full-time employees in 2019 was 3,237.

This was 3.4% higher than in 2018

• The share of employees outside Denmark increased to 50% in 2019 from 49% in 2018

Growth in employees%

3.4%

7.8% 2422015

2,600

2016

2,765

2017

2,851

2018

3,007

2019

3,058

2015 2016 2017 2018

10.29.2

10.610.3

2019

7.8

2015 2016 2017 2018 2019

242

116

-13

188211

2015 2016 2017 2018 2019

53.948.348.447.245.7

2015 2016 2017 2018 2019

2,039

2,1712,213

2,127

2,020

2015 2016 2017 2018 2019

3,2373,129

2,937

2,677

2,494


M Main highlights

Protecting your assets with IT securityIn an increasingly complex world of IT, the protection of business assets becomes progressively more important and more sophisticated.

As more and more random and targeted cyberattacks continue to threaten businesses globally, the need for mitigating and protecting company assets grows. At NNIT, the Cyber Defense Center encompasses all NNIT’s security related response services. We support 24/7 monitoring and response by certified cybersecurity specialists with an agile delivery model that is customizable to the client needs.

NNIT offers a wide range of services that help clients achieve the right level of security protection for their busi-ness and to avoid financial and reputational damage. From initial security assessment to getting an overview of the current threat landscape, pain points and desired risk pro-file. NNIT also support clients’ developing a roadmap for implementing the identified security initiatives and advise and manage across all aspects of the security landscape, including the people, process and technology areas.

NNIT cybersecurity motto is to ‘predict, prevent, and respond’.

Management ReviewAnnual report 20198

Five-year performance highlights

DKK million 2019 2018 2017 2016 20152018

-2019

Financial performanceRevenue: Change Novo Nordisk Group 955 1,124 1,185 1,238 1,316 -15.1% Life sciences international 361 212 153 127 125 70.5% Life sciences Denmark 230 222 222 231 209 3.8%Life sciences 1,546 1,558 1,560 1,597 1,650 -0.8% Enterprise 802 794 684 546 385 1.1% Public 392 399 354 385 375 -1.7% Finance 318 256 253 237 191 23.7%Private & Public 1,512 1,449 1,291 1,168 951 4.3%Total revenue 3,058 3,007 2,851 2,765 2,600 1.7%

EBITDA before special items 498 554 494 437 410 -10.3%Depreciation and amortization 259 247 232 144 141 4.6%Operating profit before special items1 239 307 262 293 269 -22.3%Special items1 24 0 0 0 0 n.a.Operating profit (EBIT) 215 307 262 293 269 -30.1%Net financials 16 -2 -10 -13 3 n.a.Net profit 183 236 199 216 212 -22.5%

Investment in tangible assets 134 146 327 165 141 -8.3%Investments in intangible assets and acquisition in subsidiaries 87 177 108 14 0 -50.2%Total assets 2,613 2,545 2,322 1,591 1,336 2.7%Equity 1,169 1,085 974 846 741 7.8%Dividends proposed/paid 98 113 105 102 97 -12.8%Free cash flow 242 116 -13 188 211 108.2%

Earnings per shareEarnings per share (DKK) 7.43 9.60 8.17 8.89 8.76 -22.6%Diluted earnings per share (DKK) 7.36 9.52 7.97 8.85 8.73 -22.7%

EmployeesAverage number of full-time employees 3,237 3,129 2,937 2,677 2,494 3.4%

DKK million 2019 2018 2017 2016 20152018

-2019

Financial ratiosRevenue growth 1.7% 5.5% 3.1% 6.3% 7.9%Gross profit margin 15.5% 18.0% 18.0% 19.6% 19.9%EBITDA margin 16.3% 18.5% 17.3% 15.8% 15.8%Operating profit margin before special items 7.8% 10.2% 9.2% 10.6% 10.3%Operating profit margin 7.0% 10.2% 9.2% 10.6% 10.3%Effective tax rate 21.0% 22.8% 21.2% 23.0% 22.0%Investments/Revenue 5.4% 5.3% 11.8% 6.4% 5.4%Return on equity2 16.2% 22.9% 21.8% 27.2% 29.8%Solvency ratio 44.8% 42.6% 41.9% 53.2% 55.5%Return on invested capital (ROIC)2,3 10.4% 16.1% 20.8% 37.6% 38.3%Cash to earnings2 132.3% 49.3% -6.3% 87.3% 99.2%Cash to earnings (three-year average)2 55.9% 44.9% 61.7% 86.6% 93.2%

Additional numbers4

Order entry backlog for the current year 2,039 2,171 2,213 2,127 2,020 -6.1%

1) Special items comprise restructuring costs related to the business and cost restructuring plan 2) Financial metrics are moving annual total (MAT), i.e. annualized. Cash to earnings (three-year-average) is calculated using the

past 36 months 3) Net profit/average invested capital 4) Backlog represents anticipated revenue from contracts or orders executed but not yet completed or performed in full, and

the revenue that is expected to be recognized in the future


M Performance highlights

NNIT’s 2019 revenue growth of 1.7% and operating profit margin before special items of 7.8% (8.0% in constant currencies) were in line with the most recent outlook provided in October 2019. Revenue growth and operating profit margin before special items were below the outlook provided in January 2019 due to a large decrease in revenue and operating profit margin from the Novo Nord-isk Group.

Investments were in line with the outlook provided in January 2019 and reiterated in October 2019.

Revenue developmentRevenue increased by 1.7% (1.2% in constant currencies) in 2019 driven by 70% and 24% growth from the international life sciences and finance clients, respectively. Clients from life sciences Denmark increased by 3.8% and enterprise clients by 1.1%. This was partly countered by a decline in revenue from the Novo Nordisk Group of 15.1% and public clients of 1.7%. Revenue from clients outside the Novo Nordisk Group increased by 11.7%. Adjusted for acquisitions, organic growth was negative 1.5% including the Novo Nor-

disk Group and positive 6.2% excluding the Novo Nordisk Group.

As a consequence the share of NNIT’s rev-enue from clients outside the Novo Nordisk Group increased to 69% in 2019 from 63% in 2018.

Gross profit, costs and operating profitGross profit decreased by 12.2% due to declining revenue and lower margins from business with the Novo Nordisk Group. Following the unsatisfactory gross profit development, NNIT has initiated a business and cost restructuring plan with a targeted impact of DKK 150 million in 2020 and a tar-geted full year run-rate impact of minimum DKK 200 million from 2021. The gross profit margin was 15.5% in 2019 compared to 18.0% in 2018.

Sales and marketing costs increased by 3.0% due to increased activities with the acquisi-tions of Valiance and HGP. Administrative expenses decreased by 1.0% in 2019 mainly due to cost efficiencies.

Operating profit before special items decreased by 22.3% to DKK 238.7 million,

corresponding to an operating profit margin of 7.8%, which was 2.4pp lower than in 2018 due to the above-mentioned developments.

Special items amounted to DKK 23.8 million and was mainly related to severance pay-ments to terminated employees. Operating profit margin after special items was 7.0% in 2019.

Life sciences, revenue and profitability review Revenue in life sciences decreased by 0.8% in 2019 driven by the decline in revenue from the Novo Nordisk Group partly offset by growth from international life sciences and clients from life sciences Denmark.

Novo Nordisk GroupRevenue from the Novo Nordisk Group declined by DKK 169.3 million or 15.1% in 2019, primarily due to a significant reduction in project activity and lower prices.

Life sciences internationalRevenue from life sciences international clients increased by 70.5% in 2019 driven by the contribution from the Valiance acquisi-tion with impact from November 2018, the HGP acquisition with impact from April 2019 and increased project activity. Or-ganic growth was 17.1% in 2019 driven by increased revenue within Compliance as a Service, Veeva solutions and regulatory af-fairs offerings.

NNIT delivered revenue growth of 1.7% and an operating profit margin before special items of 7.8%.

2019 financial performance

Customer group DKK million 2019 2018 2018-2019

Novo Nordisk Group 955 1,124 -15.1%Life sciences international 361 212 70.5%Life sciences Denmark 230 222 3.8%Life sciences 1,546 1,558 -0.8%Enterprise 802 794 1.1%Public 392 399 -1.7%Finance 318 256 23.7%Private & Public 1,512 1,449 4.3%


M Financial performance

0

500

1,000

1,500

2,000

2,500

2015 2016 2017 2018 2019

Order entry backlogDKK million

Contracts for delivery in the year at the beginning of the year

Operating profit and margin before special itemsDKK million %

Operating profit before special items Operating profit margin before special items

Revenue by customer group%

Life sciences DenmarkRevenue from clients in life sciences Den-mark increased by 3.8% in 2019 mainly due to higher project activity with existing clients.

The decline in revenue and prices from the Novo Nordisk Group had a significant negative impact on gross profit, operating profit and corresponding margins. Further, margins were impacted negatively by costs from purchase price allocation (PPA) in rela-tion to the acquisitions of Valiance Partners and HGP which typically impact NNIT for a period of two-three years after the acquisi-tions. Operating profit before special items in the life sciences segment decreased by 27.5% to DKK 203.0 million leading to an

operating profit margin of 13.1% compared to 18.0% in 2018.

Private & Public, revenue and profitability reviewRevenue in the private & public segment increased by 4.3% in 2019 driven by finance and enterprise clients which was partly offset by public clients.

Enterprise clientsRevenue from enterprise clients increased by 1.1% driven by sales to GN Hearing and full year effect of STARK partly countered by price reductions and lower scope on some of the large enterprise agreements.

Public clientsRevenue from public clients decreased by 1.7% due to the lower scope on the agree-ment with DSB.

Finance clientsRevenue from finance clients increased by 23.7% mainly due to expansion of service level agreements with existing clients and the new contracts with AP Pension and SDC.

Operating profit before special items in private & public increased by 31.2% to DKK 35.7 million leading to an operating profit margin of 2.4%. A strong growth and margin development in the Microsoft D365 ERP implementation business is partly offset by

Income statement DKK million 2019 2018 Change

Revenue 3,058 3,007 1.7% Cost of goods sold 2,583 2,466 4.7%Gross profit 475 541 -12.2%Gross profit margin 15.5% 18.0% -2.5pp Sales and marketing costs 131 128 3.0% Administrative expenses 105 106 -1.0%Operating profit before special items* 239 307 -22.3%Operating profit margin before special items* 7.8% 10.2% -2.4pp Special items* 24 0 n.a.Operating profit 215 307 -30.1%Operating profit margin 7.0% 10.2% -3.2pp Net financials 16 -2 n.a.Profit before tax 231 305 -24.3% Tax 48 69 -30.3%Effective tax rate 21.0% 22.8% -1.8ppNet profit 183 236 -22.5%

* Special items comprise restructuring costs related to the business and cost restructuring plan

Novo Nordisk Group Life sciences international Life sciences Denmark

Enterprise Public Finance

2015 2016 2017 2018 2019

100

150

200

250

300

350

2

4

6

8

10

12 31%

8%

12%

13%

26%

10%


price reductions and lower scope on large outsourcing agreements.

Order entry backlog At the beginning of 2020, NNIT’s order entry backlog for 2020 amounted to DKK 2,039 million, which was a decline of 6.1% compared to the backlog for 2019 at the beginning of 2019. The backlog from the Novo Nordisk Group declined by 26.4% while the backlog for life sciences and pri-vate & public clients increased by 12.3% and 4.4%, respectively. The decline in the Novo Nordisk Group order entry backlog is due to expiry of the large application maintenance agreement which has not been prolonged, while the order entry backlog in private & public is impacted by the loss of PANDORA agreement, but still showing a growth of more than 4% due to strong growth from other clients.

The high growth in NNIT’s project business with low backlog visibility and a declining multiyear outsourcing business makes the

backlog numbers less useful as a predictor for revenue growth than in previous years.

Net financials and taxNet financials showed an income of DKK 16.1 million in 2019 compared to an expense of DKK 2.3 million in 2018. The improve-ment was primarily due to higher gains on cash flow hedges and a positive effect from earn-out adjustments (DKK 8.3 million). Income tax decreased to DKK 48.4 million in 2019 compared to DKK 69.5 million in 2018, mainly due to the lower profit before tax and adjustments from prior years. The effective tax rate for 2019 was 21.0%, a decrease of 1.8pp compared to 2018 due to adjustments related to prior years.

Capital expenses and free cash flowInvestments amounted to DKK 166.5 million in 2019 compared to DKK 160.5 million in 2018. The increase is related to replace-ment of fully depreciated equipment and investments related to new clients. The free cash flow for 2019 was DKK 241.7 million

compared to a free cash flow of DKK 116.1 million in 2018. 2018 was impacted by the acquisition of Valiance Partners (DKK 162.3 million), whereas 2019 was impacted by the acquisition of HGP (DKK 57.9 million). Fur-ther, the increase is mainly related to com-mercial use of factoring on two of NNIT's larger clients with a strong credit profile (please see note 3.6 for further information) partly offset by the lower operating result, other changes in working capital and higher investments.

NNIT paid ordinary dividends of DKK 63.9 million in March 2019 and interim dividends of DKK 49.2 million in August 2019. 2019 net cash flow amounted to DKK 14.4 million compared to a DKK 33.0 million outflow in 2018.

Balance sheetNet cash and cash equivalents were nega-tive with DKK 109.1 million at December 31, 2019, an increase of DKK 26.0 million relative to December 31, 2018. Equity at December 31, 2019 amounted to DKK 1,169.4 million, an increase of DKK 84.5 million compared to December 31, 2018. The improvement was due to net profits offset by the payment of ordinary dividends for 2018 (DKK 63.9 mil-lion) and interim dividend for 2019 (DKK 49.2 million).

Events after the balance sheet dateThere have been no events after the balance sheet date which would have a significant impact on an assessment of NNIT's financial position at December 31, 2019.

Business areasDKK million

Life sciences 2019 2018 2018-2019Revenue 1,546 1,558 -0.8%Operating profit before special items 203 280 -27.5%Operating profit margin before special items 13.1% 18.0% 4.9pp Private & Public 2019 2018 2018-2019Revenue 1,512 1,449 4.3%Operating profit before special items 36 27 31.2%Operating profit margin before special items 2.4% 1.9% 0.5pp

Revenue growth

5.5% (2018)

1.7%

Ten largest clients' share of NNIT’s total revenue:

69% (2018)

63%

Novo Nordisk Group share of NNIT's total revenue:

37% (2018)

31%


The order entry backlog for 2020 at the beginning of Q1 2020 declined by DKK 131.9 million to DKK 2,039 million, or by 6.1%, compared to the order entry backlog for 2019 at the beginning of Q1 2019. The de-clining order entry backlog is primarily due to the earlier announced termination of the application maintenance agreement with the Novo Nordisk Group (effect from January 1, 2020) and the termination of the business with PANDORA (expected revenue of around one quarter of the revenue in 2019).

The large operations maintenance agree-ment with the Novo Nordisk Group expires at the end of 2020. However, in the following guidance it is assumed that the agreement is renegotiated and prolonged during the first half of 2020 with an impact from the time of signing.

NNIT’s guides a revenue decline of 4-8% in constant currencies for 2020 excluding potential new acquisitions in 2020. The operating profit margin before special items (DKK 15-25 million) in constant currencies is expected to be in the range of 6-8%. Invest-ments are expected to be 5-7% of revenue.

The guidance is based on a number of important assumptions, including that business performance, client and competi-tor actions will remain stable and that key currency exchange rates will remain at the current (as of January 22, 2020) levels versus Danish kroner.

Forward-looking statements

This Annual Report contains forward-looking statements. Words such as ‘be-lieve’, ‘expect’, ‘may’, ‘will’, ‘plan’, ‘strategy’, ‘prospect’, ‘foresee’, ‘estimate’, ‘project’, ‘anticipate’, ‘can’, ‘intend’, ‘outlook’, ‘guid-ance’, ‘target’ another words and terms of

similar meaning in connection with any discussion of future operating or financial performance identify forward-looking statements. Statements regarding the fu-ture are subject to risks and uncertainties that may result in considerable deviations

from the outlook set forth. Furthermore, some of these expectations are based on assumptions regarding future events which may prove incorrect. Please also refer to the overview of risk factors in the ‘risk management’ section on page 29-31.

Summary of current expectations

Current guidance

Organic revenue growth in constant currencies* -4% to -8% Operating profit margin before special items in constant currencies* 6-8% Investments / revenue 5-7%

* Constant currencies measured using average 2019 exchange rates

Currency sensitivities Estimated annual impact on NNIT’s Hedging operating profit of a 10% increase in period the outlined currencies against DKK* (months)

EUR DKK 28 million -CNY DKK -18 million 14CZK DKK -10 million 14PHP DKK -7 million 14CHF DKK -1 million -USD DKK 6 million -

Hedging gains and losses do not impact operating profit as they are recognized under net financials.

* The above sensitivities address hypothetical situations and are provided for illustrative purposes only. The sensitivities assume our business develops consistently with our cur-rent 2020 business plan.

Key currency assumptions YTD 2020 average Current 2018 average 2019 average exchange rates exchange rates DKK per 100 exchange rates exchange rates at January 22, 2020 at January 22, 2020

EUR 745.32 746.60 747.30 747.30CNY 95.43 96.53 97.17 97.70CZK 29.06 29.08 29.65 29.73PHP 11.98 12.88 13.22 13.24CHF 645.74 671.37 692.73 694.61USD 631.74 667.03 671.59 674.24

Outlook


M Outlook

Market trendsNNIT's new focused go-to market strategy is supported by key market trends. Due to NNIT's prominence as a digital transforma-tion partner and IT services company in Denmark and internationally (life sciences), global macro trends will continue to signifi-cantly impact NNIT as well as the businesses of NNIT's clients. Digital transformation is an umbrella term covering the transition from analog to digital business that is changing how businesses operate and deliver value to their clients.

As a result of businesses scaling up their dig-ital efforts, the typical client across various industries will face up to four core realities:

1) The need to digitally transform their busi-ness to fuel growth by innovation

2) The need to increase productivity while creating superior customer experiences

3) The need to increase agility while sustain-ing access to critical systems

4) The need to secure regulatory compli-ance while safeguarding the organization with a high level of cyber security.

As the world transforms at an accelerating speed, businesses must address all these realities in order to remain competitive.

Next generation ERPEnterprise Resource Planning (ERP) systems are the digital backbone in enabling the digital transformation and ensuring stable business critical processes. Core players this area are SAP (S/4 HANA) and Microsoft (Dy-namics 365), who are investing significantly in bringing new advanced functionality into their ERP suites.

Customer experienceCustomers' and employees' experiences will be increasingly strengthened by the digital business component. New solutions aimed at employees’ experiences in using corporate systems and collaborative tools to become more productive will be required. Further data-driven customer experience supported by advanced AI solutions will emerge creating new experiences and new revenue streams.

Agility and hybrid CloudBusinesses are increasingly coming under pressure to become more agile and to respond to changing market conditions. The cloud is appreciated as a lever for boosting both agility and speed of innovation. Hybrid cloud solutions are essential in increasing business agility; placing IT in the cloud where possible and on-premise where it is required due to regulation or specific business needs.

Much of the innovation using the cloud solutions will be based on agile and DevOps principles to ensure close cooperation be-tween developers, operations and end-users. These new models will co-exist with more traditional methods.

Regulation, security, complianceWith everything being digitalized, data vol-umes explode and hence the need for data protection increases. Public authorities esca-late regulation to protect citizens’ personal data and prevent cybercrime, and businesses must comply with authorities’ requirements as well as the demands of clients, suppliers, and employees. EU GDPR is among the latest cross sector regulation, but more is expected such as the EU NIS for critical infrastructure. Industry specific regulation e.g. anti-money laundering for financial services and life sci-ence specific regulation will continue to drive new IT investments. Security and compliance is moving up in the corporate agenda with Board of Directors requiring regular report-ing and updated threat assessments.

Data and AIWhile technology such as robots, artificial intelligence (AI), blockchain, and the Internet of Things transform multiple companies and entire industries, innovation capabilities and processes must be redesigned to address new challenges and take a more radical ap-proach. Design thinking methods therefore increasingly take precedence over old and incremental ways of innovating.

IntegrationAs digital transformation spreads throughout ecosystems and digital platforms the need for strong integrations increase rapidly. The advancement of e.g. cloud solutions enhances the need for integration solutions that can tie the applications together in a fast, secure and compliant manner.


M Market trends

NNIT strategy

At NNIT, we still stand firmly on our three core values and we strongly believe that we can continue to make a mark on business and society together with our clients and partners.

Following a thorough review of our operating environment, trends in the market, competitive reality and client demand, we have sharpened our strategy.

Aspiration

Together we make a mark in business and society; bringing digital transformation to life

Strategy

We enable value creation through winning solutions based on proven concepts delivered fit for purpose and first time right

Values

Open and honest Conscience driven Value adding

With the unexpected sharp decline in busi-ness with the Novo Nordisk Group, termina-tion of the PANDORA agreement, increasing competition from new entrants, increased price pressure within the infrastructure out-sourcing area and the need for faster adop-tion of cloud/hybrid solutions, the board has adjusted the strategy with a new focused go-to market approach.

The strategy includes:

• Continue the successful life sciences strategy with focus on Regulatory Affairs, Quality Management, Pharma Production IT and Veeva solutions with a targeted an-nual organic growth of around 20%

• Continue to actively pursue acquisitions of IT companies serving life sciences and/

or companies with capabilities within selected technology areas

• Continue the earlier announced busi-ness and cost restructuring plan reducing costs by DKK 150 million in 2020; target-ing a full-year run rate impact of mini-mum DKK 200 million in 2021. Significant cost reductions have already been carried out in Denmark and China

• Implement a new focused go-to market strategy in high growth areas leverag-ing existing strong capabilities or areas where NNIT has the potential to build strong capabilities – named "winning solutions". These winning solutions will be built on proven standardized concepts which are delivered fit for purpose and first time right. Please see the following pages for more information

The strategy presented in January 2019 was based on a thorough review of the direction set at the IPO and included greater customer centricity and a new organization.


M NNIT strategy

At NNIT the customer-centric focus remains unchanged in the new go-to market strategy. NNIT maintains a firm focus on the inter-national life sciences industry and select clients of Danish origin in Private and Public industries.

NNIT's clients and prospects across indus-tries are faced with a multitude of poten-

tials and pitfalls in terms of applying digital services to drive fast and sustainable value creation.

NNIT will provide winning solutions based on proven concepts that are delivered fit for purpose and first time right. We believe this is the recipe for both client and NNIT success.

To ensure client success through fast and sustainable value creation, three dimensions apply to the go-to market strategy covering all the selected winning solutions.

Proven conceptClients need a fast and safe implementation with less risk of delay or redun-dancy. Concepts and solu-tions must be well-tested and swiftly implemented to deal with any pain point – quickly supporting clients’ business.

Fit for purposeClients need to-the-point solutions without any un-necessary features or ob-stacles that are contextual to their business today and sustainable for value creation in the long run.

First time rightClients will continue to expect a solution that rem-edies the specific business pain or support the exact business potential, without reruns, contract and scope changes.

A proven concept means basing an offering on a recognized technol-ogy and/or business critical service. The proven concept is based on a standardized and easily configurable solution that contribute to repeatable business.

Fit for purpose means delivering a solution on time and to the estimated cost, solving exactly what is important for the client – nothing more and nothing less.

First time right means using proven concepts with a fit-for-purpose scoping that is based on best practice. This means focus on best practice sharing to ensure fast and friction-free implementa-tion.

Winning solutions

Digital transformation

Value creation

CustomerCentricity


Microsoft solutionsNNIT together with its subsidiary SCALES is the leading provider of Microsoft D365 FO (Finance & Operations) implementations and operations in Scandinavia due to a proven concept and a close relation-ship with Microsoft. Together with the full-stack enterprise service capabilities and global 24/7 setup NNIT differentiates compared to most of the other Microsoft partners in Denmark. These solutions will continue to drive productivity gains and digital transformation for NNIT clients.

IntegrationWith the complexity of the digital and hybrid world today, integration services are key to success. NNIT is today recognized as a local leader in integrations across technologies utilizing the global delivery model of NNIT. NNIT’s integration solutions fuel digital transformation and cloud enablement using state of the art technologies based on proven gov-ernance. With increased focus and cross NNIT collaboration NNIT can leverage this to high and sustainable growth.

Hybrid cloudDigital transformation will continue to be fueled by cloud solutions. The NNIT hybrid cloud strategy support existing clients and new clients in their cloud journey. Regardless of whether hybrid means combining multiple cloud solutions or finding the right mix between cloud and on-premise, NNIT offer a phased plan for the cloud journey with strategic focus on migration, advisory ser-vices combined with standardized operational cloud services.

Data & AICompanies are on a transformative journey to make data and insight a strategic corporate asset. The use of data is the fuel for optimiz-ing current and future produc-tion processes, business models, products features, and customer experiences. NNIT is positioned with the competencies and brand to help our customers navigate this journey, especially within life sciences with a strong competitive GxP and compli-ance edge across domains.

Pharma Production ITWith its widely recognized reputa-tion in the pharmaceutical produc-tion IT area, NNIT will offer a full (end-to-end) service, especially Pharma MES. The objective is to “globalize” the service offerings and offer a truly end-to-end service for market leading production IT and supply chain IT solutions. NNIT aims to be recognized as a leading pro-duction and supply chain advisory, consultancy and services company that helps life sciences companies to embark on their digital journey in their production facilities.

Quality ManagementDigital platforms will be a key offer-ing for life sciences companies in the future. Several clients are looking on how to optimize, transform and digitalize their existing quality man-agement landscape and processes to support the digital transforma-tion. NNIT has a deep understand-ing of the GxP requirements in life sciences and understands how to drive digital transformation at a global scale with advanced quality management solutions such as Intel-ligentQA, Test Automation, Digital Validation Lifecycle Management, Paperless Validation and Continuous Validation.

CybersecurityIn line with increasing security and compliance demands in the market at large, NNIT has one of Denmark's largest cybersecurity organizations with more than hundred employees covering deliverables from advisory to support. The combination of a skilled workforce and the experience from regulated industries, NNIT sees a large market potential for this solution area. NNIT will leverage its broad security competencies to make NNIT one of the preferred cy-bersecurity players in the IT market.

Employee experienceFollowing Microsoft as a world leader in creating employee experi-ence and productivity, NNIT wants to become one of the leading providers in Denmark. The services include traditional end user outsourcing, as well as new digital workplace services, hereunder Device Manage-ment (Configuration Management, Software Packaging and Deploy-ment), O365 (SharePoint, Exchange, Skype/Teams etc.), MS Virtualization, MS 365 Security Services (Always On, Windows Hello etc.).

Veeva SolutionsNNIT is well positioned as one of eight global primary partners for Veeva and the largest partner in Europe. Veeva is offering a unified platform for Clinical, Quality, Safety and Regulatory Affairs for the life sciences industry, in a multitenant cloud setup. NNIT has defined a set of services, in cooperation with Veeva, which is complimentary to the Veeva standard project model. The NNIT Veeva Powerhouse suite focuses on implementation services and application services.

SAP SolutionsWith more than 300 employees working with SAP NNIT is considered as one out of 10 global SAP life sci-ences partners and in Denmark one of top five SAP system implementa-tion/integration partners. NNIT has a deep understanding of the complete SAP product portfolio as well as the business processes supported by these SAP products. SAP is investing heavily in their digital product suite outside the ERP core, which opens up many new opportunities for SAP related business e.g. cloud enabled services.

As part of the new strategic direction, ten winning solutions have been identified. These solutions are characterized by existing NNIT capabilities and market potential. The winning solutions are:


Halfmann Goetsch Partner AG – an NNIT Group Company

HGP is recognized and referenced as one of the strongest providers of IT compliance and quality management services to primarily pharmaceutical companies. NNIT has inte-grated its existing employees in Switzerland into their headquarter in Basel. Further-more, the company has delivery centers in Frankfurt and Singapore, and a nearshore office in Krakow.

The acquisition provides NNIT with a strong-er presence in the European life sciences hubs of Frankfurt and Basel and strength-ens its position as an international leading IT transformation partner for life sciences companies.

Compliance excellence in life sciences While collection of data increases within life sciences, regulatory requirements also increase with industry-specific regulation and general data privacy laws. As the tech-nological opportunities and the pressure for legal compliance increase, the market for

data risk management and validation of data systems grows significantly.

With a flexible consultancy base and access to top subject matter experts from across the international life sciences IT arena, HGP offers the industry leading approach to com-pliance excellence. Combined with NNIT’s existing quality management portfolio, HGP’s excellence, reputation and network within IT compliance is expected to gener-ate cross sales synergies. Synergies are also expected within pharmaceutical production, where HGP’s thought leadership fits well with NNIT’s existing portfolio of IT-services.

Market leading technology and automation The need for automated IT compliance, system validation and data traceability has never been higher. On top of this, increasing regulations on data integrity and security put further pressure on the business. With the acquisition of HGP, NNIT can accelerate clients' use of new technologies. We com-

In April 2019, NNIT A/S announced the acquisition of Halfmann Goetsch Partner AG (HGP), a swiss-based life sciences IT technology company.

bine deep domain knowledge about pro-cesses, IT and business requirements with market leading technology and automation – in short; together we help clients bridge technology and compliance.

HGP was established in Basel in 2008 as a business consultancy dedicated to IT compliance services to the pharmaceutical industry, and clients include companies such

as Merck, Novartis and Hoffmann La-Roche. With more than 10 years of business, the company employs 70 experts with extensive experience delivering highly specialized offerings such as Information Risk Manage-ment, Computer System Validation (CSV), Manufacturing Execution Systems (MES) Implementation, Data Privacy (GDPR), Data Integrity, Good Manufacturing Practices, Track & Trace and Audit Readiness.


M Halfmann Goetsch Partner

Strategy, vision and cultureCombined with a strong company culture and heritage, NNIT’s strategy and vision guide our management and employees, providing a strong foundation for further development and growth.

Solid balance sheet and access to capitalAs a listed company and with a strong balance sheet NNIT has access to capital for invest-ments and strategic growth.

Brand and relations buildingNNIT is a strong IT and consultancy brand that combined with strong client, investor and employee relations presents a significant resource for further positioning.

Knowledge and insightNNIT is built on a comprehensive knowledge base; in IT development, implementation and operations.

People and competenciesNNIT’s business results continue to rely on highly skilled, passionate and loyal employees, who are able to transform their IT knowledge into value-adding solutions for our clients.

Delivery modelNNIT operates a global delivery model with delivery centers in Denmark, China, Philip-pines and the Czech Republic, the latter including a multi-lingual service-desk currently supporting ten different languages.

Our business model

On clients: NNIT drives business change and trans-formation at a high pace while delivering sustainable business results and keeping the business secure and compliant.

Shareholders: NNIT intends to deliver a competitive return to its shareholders through a dividend pay-out ratio of at least 45%.

Employees: NNIT create jobs and develop talents and careers in all locations where NNIT is present.

Society: At NNIT, we want to make a mark and support initiatives that inspire the young generation to explore the potential of tech-nology careers – ultimately strengthening the talent pool, not just for the benefit of NNIT, but for society in general.

NNIT resources This is how we bring digital transformation to life Benefits

People: NNIT’s business results rely on highly skilled, passionate and loyal employees, who are able to transform their IT knowl-edge into value-adding winning solutions for our clients.

Combined with a strong company culture and heritage, the NNIT aspiration, strategy and values guide our leadership team and employees, providing a strong foundation for further development and growth.

Process:The NNIT delivery processes are orches-trated in a global integrated model. The model enables both agile methods as well as more classical models better suited for certain deliveries.

Financial:As a listed company and with a strong balance sheet NNIT has access to capital for investments and strategic growth. We support:

To allow clients to fully focus on core business, NNIT offers a vast variety of support services, providing everything from call center services to full-service desk services and onsite end-user any device support.

We advise: As digital solutions and technology are transforming all industries, the opportuni-ties and threats they present are dramatically expanding the role of the information technology executive. NNIT consultants bring a deep understanding of IT and domain to help clients compete successfully in the digital age.

We operate: The world operates 24/7 and relies heavily on digital business critical services to do so. To that end, NNIT offers infrastructure and application services in a hybrid cloud setup, so clients can focus on their business results and less on operations.

We build: Within our winning solu-tions areas, we can build and deliver proven concepts to our clients. At NNIT, we strive to understand our clients’ business strategy, employees and culture, so we can develop and implement fit for purpose solutions that drive tangible business benefits for our clients.

Winning solutions


M Our business model

The clients we serveNNIT offers a broad range of winning solutions to serve client groups in Denmark and internationally. Our solutions and proven concepts enable our clients to drive business change and tangible business results at a high-speed while addressing cybersecurity and compliance from regulatory requirements.

Life sciences

Denmark life sciencesOriginating from the Danish life sciences industry, our technology, information and life sciences ex-perts deliver integrated IT consultancy services and solutions that increase the capabilities of key areas of the pharmaceutical value chain, including drug development, regulatory affairs, quality manage-ment and serialization.

International life sciencesWith more than 20 years’ experience, NNIT understands the challenges that international life sciences businesses face. Our solutions are based on industry best practice, integrated with the exist-ing IT landscape, and fully compliant with FDA, EMA and other regulatory bodies.

Novo Nordisk GroupNNIT’s history dates back some 20 years and was born in 1998 as Novo Nordisk IT. The Novo Nordisk Group remains NNIT’s largest client. The Novo Nordisk genes are embedded in our DNA and in our approach to quality and business ethics.

Private & Public

FinanceFinancial institutions increasingly face demands for regulatory compliance, cost reductions and improved returns. We support our clients in achiev-ing sustainable efficiency while addressing intense regulatory oversight, cybersecurity and digital innovation.

EnterpriseIn the enterprise segment, we leverage our ex-tensive experience in regulated IT to support our clients in meeting legal requirements as well as demanding business needs. We supply everything from ERP solutions to general IT systems opera-tions for companies as diverse as manufacturing, food, and energy companies.

PublicNNIT has extensive experience in optimizing pro-cesses, simplifying work processes and reducing costs for public sector organizations. This applies to management plans, case handling, various digital services and day-to-day support.


M The clients we serve

• NNIT is mainly targeting regions and central govern-ment

• Rigorous contract regime and terms and conditions

• Public tenders regulated by law

• Replacement of legacy sys-tems is an opportunity

• Declining revenue since 2016, but still NNIT's largest client

• In depth knowledge of Novo Nordisk infrastructure and application landscape

• Regulatory driven changes

• IT cost to move towards SaaS IT and business trans-formation

• Significant potential espe-cially within Veeva solutions and Quality Management solutions



• Not a generalist market

Public

Market size 2019E1: 10.4bn Market size 2023E1: 12.1bn CAGR1: 3.9%

Finance


Enterprise

Market size 2019E1: 16.7bnMarket size 2023E1: 19.3bnCAGR1: 3.8%

Novo Nordisk Group

External IT spend2019E1: 1.9bn

International life sciences


Denmark life sciences


• Stable market situation with established IT providers



• Not a generalist market

Life Sciences Private & Public

NNIT estimated market share1

0.4%NNIT estimated market share1

32%NNIT estimated market share2

Largest IT supplier

NNIT, revenue growthDKK million

CAGR 30.4%


CAGR 2.4%


CAGR -7.7%




4.8% 3.6% 3.8%NNIT, revenue growthDKK million

CAGR 1.1%


CAGR 13.6%


CAGR 20.2%

1 Estimated market share calculated on the basis of market estimates by Gartner (Q3 2019) and NNIT 2019 revenue data2 NNIT's estimated market share at Novo Nordisk is unknown. However, NNIT is informed about being the largest IT supplier

• A significant portion of large companies still run IT in-house

• Opportunities to follow Dan-ish clients internationally

• Security, future digital work-place and SaaS solutions are increasing

• Strong regulation and com-pliance requirements fit well with our life sciences DNA

• High security demands

• On-premise data center demands

• Market is being disrupted

• Mainframe is still a signifi-cant part of the IT landscape

2015 2016 2017 2018 2019

125 127 153212

361

2015 2016 2017 2018 2019

209

232

222 222

230

2015 2016 2017 2018 2019

1,3161,238

1,1851,124

955

2015 2016 2017 2018 2019

384546

684794 802

2015 2016 2017 2018 2019

191237 253 256

318

2015 2016 2017 2018 2019

375 385 354399 392


M ?????

A common denominator for all of NNIT’s clients is the need for competitive solutions that enable them to digitally transform and meet the requirements of their customers. In addition to our ongoing interaction with clients, NNIT runs an extensive customer feedback program, aimed at collecting input from clients. We believe that a good custom-er experience is everybody’s business, hence NNIT has made this a top priority across the entire company.

NNIT’s customer feedback program is divided into three feedback channels. An annual Customer Satisfaction Survey measuring each client’s overall satisfaction with NNIT, a quarterly survey (‘EvalGO’) measuring satisfaction with specific deliver-ies (approximately 1,500 surveys a year), and last but not least, End-user Surveys that continuously measure clients’ satisfaction with NNIT’s service desk.

To further ensure that cooperation and business with clients are conducted in a proper and diligent manner, NNIT under-goes several client audits each year (14 in 2019 compared to 18 in 2018). Audits, which also include third-party audits, independent service auditor reports, and internal audits, seek to determine whether deliveries meet client expectations and regulatory require-ments. No material findings have been identified in the audits conducted in 2019.

The number of independent service auditor reports were 37 (35 in 2018).

In line with ISO 9001 and ISO 27001certifica-tion requirements including interpretation of FDA and EMA regulations, NNIT further con-ducted internal audits and external supplier audits in accordance with ISO certifications.

NNIT’s clients include some of the most prestigious brands; international life sciences companies, enterprises and financial services firms as well as public sector organizations.

Customer experience and satisfaction


M Customer experience 1

Target Target NNIT revenue

(ability to meet deadlines - scale 1-5)%

(key performance indicators (KPI) met)% Complaints Revenue DKK million

2015 2016 2017 2018 2019

0

6

12

18

24

30

2,200

2,400

2,600

2,800

3,000

3,20026 25

18 17

10

80

84

88

92

96

100

2015

93.5

2016

98.2

2017

98.0

2018

96.9

2019

96.5

3.4

3.6

3.8

4.0

4.2

4.3

2015

4.2

2016

4.1

2017

4.1

2018

4.2

2019

4.3

Customer experienceCustomer satisfaction EvalGo End-user survey

Target 4.01 5

Target 4.01 5

Target 4.01 5

(Scale 1-5), 2018: 3.7

3.6(Scale 1-5), 2018: 4.2

4.3(Scale 1-5), 2018: 4.4

4.4

4.3

Project performance

93.5%

Service performance indicators

10

Quality (Customer complaints)

NNIT runs an extensive customer feedback program in order to chart the customer experience and improve it systematically. The numbers are consistently addressed in all areas of the organization and given top priority.

Two out of the five customer journey scenes indicate room for improvement in relation to the customer satisfaction score. Actions have been identified.

The service performance indicator result of 93.5% in 2019 was affected by a high com-plexity in onboarding of a new customer and the implementation of revised contracts with three existing customers.

Bi-annual survey focusing on the full cus-tomer journey. Respondents are typically top management.

Quarterly survey focusing on the specific deliveries. Respondents are typically middle to top management.

Ongoing surveys focusing on the experience delivered to users of the NNIT Service Desk. Respondents are IT Users (all levels).


M Customer experience 2

In addition to already well established partnerships such as SAP, Microsoft and Veeva NNIT in 2019 introduced a number of new partnerships. By focusing on what our clients can achieve by using the latest technology rather than on the technical solution itself, NNIT help its clients meet their business and commercial requirements.

New partnerships

LEAPWORK Codeless automationLEAPWORK is the first no-code software robotics platform. With this technology, which includes machine learning and AI, automation becomes business-friendly because the software is easy to access and quick to get up and running and can be used by people who are not tech-savvy. Combining the strength of the successful entrepreneur and NNIT, we collaborate to help clients take automation and artificial intelligence (AI) to the next level and help them bump up their efficiency.

2021.ai Integrating AI solutions with the businessThe partnership strengthens NNIT’s innovative offerings with a focus on Artificial Intelligence (AI) as a means for improved competitiveness and allows organizations to get value from AI and apply it to their business challenges.

With the 2021.ai-platform clients can both develop, productionize and efficiently scale their AI models and solve some of the most complex problems, or directly implement packaged models related to e.g. churn prediction, chat-bots, classification, and much more.

Apptio Optimizing cloud spend Being a leading provider of SaaS solutions that help organizations make smart decisions, the partnership with Apptio is dedicated to support clients with cloud cost management and optimization using machine learning.

With virtually all organizations using cloud in one way or the other, the pace of change is only growing. The lion’s share of enterprise workloads is predicted to be in the cloud by 2020.

Amazon Web Services (AWS) Leading cloud provider AWS is the largest cloud IaaS (Infrastructure as a Service) provider globally. NNIT sees great potential in AWS as one of the preferred life sciences cloud partners focusing on SAP, Validation and Data & AI as well as helping Danish based clients with AWS’s innovative solutions. Furthermore, NNIT has the capabilities to orchestrate an ‘End2End’ AWS cloud services model for life sciences companies.

Management Review24 Annual report 2019

M Partnerships

Moving to the cloud has long been a goal for many businesses. However, for some, meeting regulatory compliance requirements prove to be a strong challenge. With NNIT’s hybrid cloud, clients benefit from the best of two worlds; the innovative public cloud and the highly controlled compliant infrastructure of the private cloud.

With our catalog of cloud services and our strong part-nerships as a solid foundation, clients get a reliable and well-architected cloud solution built from proven components, regardless of whether the preferred plat-form is Microsoft Azure, SAP, Amazon Web Services or Google Cloud.

Rather than locking clients in to one specific solution, NNIT uses standardized native tools from the chosen platform as building blocks. In close collaboration with our clients, we tie everything together into a dynamic setup, which can be scaled up or down as needed. The entire solution is wrapped in compressed and automated monitoring systems to ensure that nothing is compromised.

Cloud – how high will you go


M Cloud - how high will you go

Business and company overviewHeadquartered in Denmark, NNIT has subsidiaries throughout Europe, North America and Asia.

USAEstablished: 2011

DenmarkEstablished: 1998

NorwayEstablished: 2017

GermanyEstablished: 2011

Czech RepublicEstablished: 2006

UKEstablished: 2015

SwitzerlandEstablished: 2003

PhilippinesEstablished: 2009

ChinaEstablished: 2007

IrelandEstablished: 2018

SingaporeEstablished: 2019

PolandEstablished: 2019

IndonesiaEstablished: 2019

Revenue in Denmark, 2019, DKK million

Based on location of clients

2,493

Revenue outside Denmark, 2019, DKK million

Based on location of clients

565

Global IT Services Estimated market CAGR

Compound Annual Growth Rate 2019-2023 from Gartner Q3 2019

+5.8%

ThailandEstablished: 2017

Delivery Private & public sales Life sciences sales


M Business and company overview

PhilippinesNNIT’s Manilla-office works as an integral part of NNIT’s global IT service delivery, special-izing in network and server operations for clients around the world. It is a part of NNIT’s 24/7 global operations setup, providing IT services to clients around the world.

Singapore, Indonesia, Thailand The Singaporean office services pharmaceuti-cal companies which have decided to place part of their manufacturing in Singapore as an Asian hub. The office in Indonesia is a delivery center for Singapore, while the Thailand office serves the local production site of PANDORA.

Company overview

Delivery Private & public sales Life sciences sales

NNIT employees end year FTE in 2019 (2018): 1,585 (1,635)

DenmarkNNIT headquarters, located in Soeborg, Copenhagen is responsible for delivery and sales, as well as administrative staff functions. NNIT further has offices in Silkeborg, Aalborg, Odense and Aarhus, respectively – servicing clients in the region. Some 1,600 colleagues work out of the Danish offices.

NNIT employees end year FTE in 2019 (2018): 839 (899)

ChinaNNIT’s China office in Tianjin is the company’s largest subsidiary. The office, which includes a sales office in Shanghai, delivers IT services to European clients while also catering to local clients in the growing Chinese life sciences market.



Switzerland, UK, Ireland, Germany, NorwayThe Zurich office spearheads our services to international pharmaceutical companies, sup-plying IT and consultancy services. We further operate small offices out of the UK, Ireland, Germany and Norway, primarily servicing local clients.


Czech RepublicNNIT’s Prague office is responsible for IT operations for clients based mainly in the European region. The office is further part of NNIT’s 24/7 global operations setup and provides a 14-language-service desk, and delivers services in close cooperation with the delivery centers in Denmark, China and the Philippines.



North AmericaThe Princeton and Basking Ridge-based offices service our North-American pharma-ceutical clients and are further responsible for sales to new life sciences clients in the region. The offices are in the so-called pharmaceutical corridor, in between Boston and Philadelphia, but also services clients on the US west coast.


PolandThe office in Poland was added to NNIT with the acquisition of HGP in April 2019. The of-fice mainly provides recruitment and staffing services.


An important part of NNIT’s business is its relationship and cooperation with Novo Nordisk. Approximately one third of NNIT’s revenue stems from this single client, hence any changes in the relationship will affect NNIT's business.

Established in 1998 as Novo Nordisk IT, NNIT’s history dates back more than 20 years. However, as part of Novo Nordisk, the mutual roots go back much further. The Novo Nordisk DNA is in NNIT's blood, and NNIT is proud to be a member of the Novo Nordisk Group.

In 2019, NNIT generated revenue of DKK 955m from this, its largest client, the Novo Nordisk Group, which accounted for 31% of NNIT’s 2019 revenue. However, sales to the Novo Nordisk Group have been declining over the past four years. Novo Nordisk – as many other companies – has increasingly changed its buying pattern, moving from a single-vendor perspective to a multi-vendor strategy. In addition, the Group is pursuing cost savings on central IT budgets which affect external IT spend.

Being NNIT’s single largest client, obviously any such changes will reflect on NNIT’s revenue and business. Still, Novo Nordisk remains an important and valued client. To sustain the long cooperation and shared history, NNIT continues to focus on business areas within Novo Nordisk, where NNIT has a competitive advantage and can generate a better output, while at the same time focusing on growing the business outside the Novo Nordisk Group to reduce dependency on any single client.

Novo Nordisk, major customer


M ???

Business with Novo Nordisk Group

• Focus at Novo Nordisk key business needs within line of business

• Offer competitive solutions and services

• Grow non-Novo Nordisk business

Attracting and retaining required talent

Innovating new services

• Executing the hybrid cloud strategy

• Focused innova-tion and service development result-ing in new proven concepts

Generating new profitable business

• Provide winning solutions based on proven concepts

• Focus on new, innovative services

• Remain price competitive by im-plementing business and cost plan

Legal risks, contract management and GDPR policies

• Strengthening of contract manage-ment framework

• Establishment of a geo-restriction program

Loss of existing business

• Implementation of security roadmap

• Clear roles and responsibilities for handling security

Risk

Mit

igat

ing

acti

ons

Risk management

• Maintaining close relationships with clients

• Partnership and new relevant offerings

• Customer-centric organization

• Establishment of Future Specialist Programs

• Focus on training in new technologies

Cybersecurity

In NNIT, risk management consists of four elements; risk identification, risk assess-ment, identification and implementation of mitigating actions as well as risk reporting. NNIT identifies risks applying a combined bottom-up/top-down approach. Key risks are initially identified within each divisional area and reported to Group Management together with information on actions taken and any further action intended. High risks are collected, and a broad list is presented in an annual risk report that is submitted to Group Management for review.

Below an overview of the key risks identified as particularly important to NNIT, including the mitigating actions taken by the company, followed by a more detailed description of the risks and the measures taken to reduce those.

NNITs financial risks such as currency risk, credit risk and interest risk are described in note 4.4. The financial risks are more limited in likelihood than the risks listed below. The client composition limits credit risk and NNIT has never had any material loss from bad debt. Currency exposure is hedged and natural hedges are aimed in order to reduce the currency exposure.

Operating in a highly competitive and rapidly changing global marketplace, a structured approach to risk management that is applied consistently across the organization is essential for profitable growth.


M Risk management

Business with Novo Nordisk Group

In 2019, NNIT generated revenue of DKK 955 from its largest client, the Novo Nor-disk Group, equaling 31% of NNIT’s 2019 revenue. However, sales to the Novo Nordisk Group have been declining over the years. (See also page 28 on Novo Nor-disk). While it is NNIT’s strategic intent to

reduce its dependency on Novo Nordisk business, it constitutes a risk if it happens sooner than new, compensating business has been generated.

Risk Mitigating actions

As the Novo Nordisk Group remains an important client, NNIT will continue to focus on generating business within Novo Nordisk Group’s line of business where the value-adds and specialization of NNIT can be utilized.

Simultaneously, NNIT will focus on the strategic intent of reducing its dependency on the Novo Nordisk Group by growing non-Novo Nordisk clients.

Attracting and retaining required talent

NNIT’s business is based on special-ized expertise in IT technology and life sciences. Maintaining and renewing existing client contracts and winning new business relies on NNIT’s ability to attract, retain and develop qualified IT profes-sionals with the skills to keep pace with the continuing changes in information technology, evolving industry standards

and changing client preferences. Further, the shortage and significant competition for qualified IT professionals constitutes a severe challenge.

It is imperative that NNIT continues to attract, develop, and retain the most skilled employees and management tal-ent. Failure to do so constitutes a risk to the Group.

NNIT makes use of various elements to address these challenges. The past decade the company has run graduate programs for talented young IT professionals. This program has been supplemented with a “Future Specialist Program” enabling IT pro-fessionals to specialize in a technical area.

To reduce attrition NNIT is conduct-ing “stay” interviews aiming to get early touchpoints instead of getting feedback at exit interviews when the employees have resigned.

Risk description

Innovating new services

Staying at the forefront of clients’ needs is imperative to beat the competition. Op-erating in a competitive market with both domestic and international players, NNIT must continuously improve efficiency and offerings to meet the demands of the clients.

Technology and market disruption change clients’ preferences and needs, which may cause existing business to shrink or disappear. Changes in market technology could also introduce new competitors, who have previously oper-ated in other industries.

NNIT has a dedicated business develop-ment and technology unit focused on investigating and gathering the latest market trends while developing and manag-ing offering initiatives and partnerships. NNIT continues to develop and strengthen offerings that match its clients' needs and requirements as well as building partner-ships with some of the industry’s leading technology providers.

NNIT takes a wide range of initiatives to ensure that new offerings, sales, branding and customer experience meet both the clients' and NNIT's needs.

NNIT aims to reposition itself as the pre-ferred hybrid clouds service provider for our clients through the dedicated hybrid cloud strategy.

Legal risks, contract management and GDPR policies

Protecting NNIT’s long-term business interests is vital to our continued opera-tions. Increasing contract complexity, the influence of legal advisors, procurement professionals and intensified regulatory requirements increase the risk of non-

compliance, disputes leading to arbitra-tion and followingly reputational damage. Also expected changes to EU legislation on data transfers (GDPR) that need to comply with geo-restrictions may impact NNIT’s business and hence pose a risk.

NNIT has implemented a contract manage-ment framework to improve the overview of contracts and contractual obligations.

NNIT has dedicated contract management team has been placed in client facing team

in order to increase the level of direct sup-port and involvement.

NNIT’s Data Protection Officers monitors GDPR developments, and the company has further established a geo-restriction program to ensure compliance.


Generating new profitable business

NNIT must continue to generate new and more business. Operating in a competi-tive market with both domestic and inter-national players, NNIT must continuously improve efficiency and offerings to meet the demands of the clients. Changing buyer behavior, including shift of buying power from CIO to line of business and procurement may affect NNIT’s ability to generate new or add-on business.

Intensifying competition from both new and existing competitors further influ-ence the market, while new technology and market disruption change client pref-erences and needs. While NNIT remains a sizable player in the Danish IT services market, internationally the company is a niche player, thus size, relations and presence are challenging factors.

Risk Mitigating actions

NNIT has formulated a new strategy focus-ing on winning solutions based on proven concepts that are delivered fit for purpose and first time right.

To support the strategy NNIT has prior-itized investments towards the winning solution areas in order to retain market

leading knowledge and competencies as well as building new capabilities.

In order to remain price competitive NNIT has launched a cost savings program aim-ing to reduce costs by at least DKK 150m in 2020 and DKK 200m by 2022.

Risk description

Cybersecurity

Cybersecurity remains one of NNIT’s top risks and could for example be intrud-ers gaining unauthorized access to NNIT impacting confidentiality, integrity and availability of critical systems and/or data resulting in breach of regulatory require-ments as well as reputational damage.

Cybersecurity risk also involves a total shutdown of systems, network or infra-structure causing a threat to the opera-tion of NNIT’s clients’ critical systems.

NNIT has successfully implemented a security roadmap which has been assessed by PwC concluding that NNIT fulfills the requirements set out by the Board of Directors meaning that NNIT is generally above the Information Security Forum (ISF) benchmark.

NNIT has appointed a Compliance Security information Officer (CISO) overseeing NNITs internal security.

NNIT will merge client focused security across the delivery functions and appoint a Customer Compliance Security Information Officer (CCSIO) with the responsibility of overseeing customer security.

Loss of existing business

Changes in clients’ purchasing behavior impact the risk of losing existing busi-ness. Such changes may be related, but are not limited, to cost reductions, adop-tion of multivendor strategies, splitting up of contracts into towers and/or new business strategies.

Change of decision-making power from CIO to line of business as well as increased procurement involvement fur-ther introduce new stakeholders, which increases the risk of changes to existing business.

More aggressive behavior from existing competitors and/or the entry of new competitors further increase the risk of losing existing contracts.

Technology and market disruption change clients’ preferences and needs, which may cause existing business to shrink or disappear. Changes in market technology could also introduce new competitors, who have previously oper-ated in other industries.

For NNIT, it is a priority to maintain close relationships with its clients in order to gain continuous feedback and under-standing of their business needs. In order to offer market-conform prices, NNIT is constantly focused on process optimiza-tion and automation as well as leveraging its global delivery model.

NNIT has a dedicated business develop-ment and technology unit focused on investigating and gathering the latest market trends while developing and man-aging offering initiatives and partnerships.

NNIT continues to develop and strengthen offerings that match its clients' needs and requirements as well as building partner-ships with some of the industry’s leading technology providers.

NNIT takes a wide range of digital trans-formation initiatives to ensure that new offerings, sales, branding and customer experience meet the both the clients' and NNIT's need for digital transformation.


Great people make the difference

To succeed as an IT company, NNIT must have the sufficient talent and resources available. As such our employees remain the core of our business, and an asset that we value, build and protect.

To help our employees realize the full potential of their talent and grow with NNIT, we continue to support and encourage their personal and professional development as well as ensure that their managers get the best possible training by continually invest-ing in leadership and mentoring programs.

When we ask our employees to ‘make a mark’ it actually means something. At NNIT, every employee is encouraged to make a personal mark on the projects they work.

To continuously be among the most attrac-tive workplaces, job satisfaction remains a key priority for NNIT. Continued learning in a constantly changing technology environ-ment is hence a focus area, and we continue

to develop individual development plans annual for every employee. In 2019, NNIT colleagues held around 4,300 technology certificates.

To ensure that our efforts warrant high employee satisfaction, we conduct an annual employee satisfaction survey. In 2019, our overall employee satisfaction rating was 4.3 on a scale of 1 to 5 (4.3 in 2018). NNIT generally enjoys high employee satisfac-tion, however it remains an area of ongoing attention.

In 2019, the turnover rate, adjusted for man-aged turnover was 15.1% (13.3% in 2018) – somewhat above NNIT’s own target of maximum 12%.

The overall turnover rate was 21.3% (19.6% in 2018) mainly influenced by an announced business and cost restructuring program in the fall of 2019. To mitigate unmanaged turnover, NNIT makes use of the concept of

Headquartered in Denmark, NNIT has subsidiaries throughout Europe, North America and Asia. In 2019, the company had a total headcount of 3,259 employees (3,237 FTE).

(employees outside Denmark)%

49.8%Internationalization ratio

2018 49.0%

2019 49.8%

2017 46.0%

2016 43.0%

2015 39.0%

(Scale 1-5)

4.3

Target

Employee satisfaction

3.4

3.6

3.8

4.0

4.2

4.4

2015

4.3

2016

4.2

2017

4.3

2018

4.3

2019

4.3


M Great people

‘stay interviews’, investigating and clarify-ing the reasons for staying as well as the threats of leaving. We further believe that a dedicated effort towards better leadership will help attract and retain highly-qualified employees and enhance the success of our In 2019, NNIT staff declined by 0.2% to the total of

3,207 full-time employees at December 31, 2019. Approximately 80% of our employees hold an academic degree, primarily within IT technologies.

-0.2%

Number of employees

End of year, FTE (3,215 - 2018)

Growth in employees

(6.1% - 2018)

3,207

Job rotations & promotions

(26% - 2018)

67% 33%

Gender distribution at NNIT

Male Female

One world, One NNIT

Nationalities

61 30%

company. We therefore operate a com-prehensive leadership training program to ensure that NNIT’s management resources are among the best in the industry with the ability to both inspire, involve and lead.

Employee turnover

Unmanaged employee turnover

Target unmanaged employee turnover

Employee turnover%

15.1%

Employee turnover rate (unmanaged)

Overview of employees' education%

Master or PhD Bachelor

Professional degrees Other

4,290

Number of certificates held by employees

0

20

40

60

80

100

2015 2016 2017 2018 2019

5.0%

10.0%

15.0%

20.0%

25.0%

2015 2016 2017 2018 2019


In a constantly evolving world of technology, the need for system integration becomes increasingly apparent. As the ability for all systems to connect, ‘talk to each other’, and share data across to improve value, system integration is at the core of an IT business.

System integration involves integration of existing, often disparate systems in a way that provides value to both the business and its clients. Proper system integration will improve the use of data, and hence optimize the business outcome.

As an experienced system integration consultant, NNIT helps clients overcome the hurdle of adding new solu-tions and technologies to an existing landscape, ensuring that all systems are able to connect. Driven by years of experience, NNIT offers IaaS (Integration as a Service), supporting businesses dismantling internal silos and ensuring seamless dataflows.

Integration


M ???

Governance Structure

Annual general meetingsThe shareholders of NNIT have the ultimate authority over the company and exercise their right to make decisions at general meetings. At the annual general meetings, shareholders approve the annual report and any amendments proposed to the company’s Articles of Association. Share-holders also elect board members and the independent auditor. NNIT’s Annual General Meeting is held in March each year. The Board of Directors and Executive Manage-ment operate under a two-tier management structure wherein powers and responsibili-ties are distributed between the Board of Directors and the Executive Management. The Board of Directors supervises the work of the Executive Management and is responsible for the overall management and strategic direction, while the Executive Management is in charge of the day-to-day management. The Executive Management has established a Group Management con-sisting of the chief executive officer, the chief financial officer and senior vice presidents. As per 31 December 2019, NNIT’s Board of Directors consisted of six shareholder-elect-ed members and three employee-elected members. One Board member is a member of the Executive Management of Novo Hold-ings A/S, and one board member is a former senior vice president of Novo Nordisk A/S

and both are regarded as representing the interests of a controlling shareholder. The remaining four of the six shareholder-elect-ed board members are independent as de-fined by the Danish Corporate Governance Recommendations. The composition of the Board of Directors ensures that its members represent the required professional breadth, industry knowledge, diversity and interna-tional experience.

Board members elected by the shareholders at the Annual General Meeting serve for a one-year term and are eligible for re-elec-tion. Board members elected by employees serve for a statutory four-year term and have the same rights, duties and responsibil-ities as shareholder-elected board members. In January 2019, the employees of NNIT A/S elected three new employee representatives to the Board of Directors of which one was a reelection. Pursuant to the articles of as-sociation, Board members must retire at th

annual report 2019 · 2020-01-29 · go-to market strategy in high growth areas leveraging our...

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